Tax deal a good, not great, bargain for Republicans

posted at 9:30 am on December 7, 2010 by Ed Morrissey

It’s victory! It’s defeat! It’s the end of Obama! It’s the end of the world! The deal to keep the current tax rates in place has received soaring praise and bitter criticism on the Right, but the truth is that the deal winds up being good for Republicans while making their job in the 112th Session a little harder, especially on budgeting. However, it works for them in other ways, especially on credibility, and sets up the next electoral cycle as a fight on tax increases — just as 2010 played out.

Jennifer Rubin diagnoses the impact of Barack Obama’s surrender on the tax question:

They won the philosophical point (tax hikes impede economic growth) and, candidly, are more than delighted to have a repeat of this debate for the presidential campaign in 2012. Ryan Ellis of Americans for Tax Reform, which strenuously pushed for extension of the Bush tax cuts, tells me,”If 2012 is a referendum on Obamacare and tax hikes, we win.”

The Left has demonized the Bush tax cuts as the Source of All Deficits for years, even though tax revenues increased after the cuts as the economy began booming again [see update III]. Obama, the most Left-leaning President ever elected, just endorsed the Bush tax rates for another two years — and, as John Hinderaker notes, added in a payroll tax holiday that will do more to encourage growth than anything Obama has done in the past two years. John Podhoretz calls this a “what the hell” deal for Obama, who coughed up more for less than imagined, and exposed his grasp of economics as superficial at best:

Here’s a theory: Obama said, “What the hell.” Once he knew he had to give in, and would get criticized for giving in, he figured he might as well go whole hog. The whole deal seems designed to test conservative arguments about how best to help the economy right now, with the understanding that if the economy improves markedly as a result, he will get more credit for his role from the independents he lost so decisively in the 2010 election. And if it doesn’t, then the GOP will be in the position he was in this year in relation to the stimulus—their desired policy won’t have worked either, and he won’t get blamed for acceding to political reality in going along with it.

Paul Krugman and the Nation and moveon.org were going to be enraged no matter what compromise he struck. So…what the hell. Go long. Try the Hail Mary. Nothing Barack Obama could have done indicates just how empty his own economic policy quiver is.

My friend and mentor Hugh Hewitt was outraged at the deal, telling me last night in a hastily-arranged but tremendously fun on-air argument that the GOP had all of the political momentum and should have held out for total victory. He was most angry about the concession on unemployment benefits, arguing that an extension of 13 months was a ridiculous idea. After all, these started at 26 weeks, and now we’re putting employers and taxpayers on the hook for 161 weeks [see update IV: still 99 weeks]. That will slow growth all on its own, and Hugh is right to be opposed to such an extension. The deal will end up costing around $270 billion over the next two years if one counts tax cuts as part of the cost (which is illegitimate, as those dollars belong to the taxpayer in the first place), which will mean the GOP will have to cut deeper in its first year than perhaps thought.

However, the nature of politics in a time of split power is compromise. Republicans made the tax rates their priority after the election, and to some extent before it as well. They needed to get a victory on this point before the tax hikes took effect, all while knowing that the situation in January would be more or less the same as it is now: Democrats still control the Senate and the White House. Demanding an all-or-nothing position would mean sticking all taxpayers with a higher bill, which (not surprisingly) was the same strategy demanded by the Left to get the GOP to surrender on the higher tax bracket rate. That position helped turn the midterm into a big loser for the Left, and it wouldn’t have helped anyone after January, either — not Republicans or Democrats. The parameters of the deal wouldn’t have changed much at all by waiting.

What do Republicans gain? They get to set up the 2012 elections in large part as a debate on pending across-the-board tax hikes for one. The extension of unemployment benefits will expire in the 2012 primaries, which will create another debate on the wisdom of continued government interventions — but also will keep unemployment higher for longer, which won’t help Obama in 2012. The estate tax only goes up to 35% after the first $5 million, rather than 55% after the first $3.5 million, as Democrats demanded (and would have gotten had they bothered to deal with it in 2009 rather than wait until now). The payroll tax holiday and the tax rate extensions may help a little in economic growth, but tax rate consistency only gets us a little further down the road and won’t be a game changer. (Increases, though, would have been disastrous.)

Mostly, though, the deal and the Democratic furor over it shows that the Republicans came to lead and get things accomplished, not just act as obstructionists for the next two years. That will add considerable credibility to the GOP from the independents who flocked to Republicans in this past midterm cycle. That’s a good, not great, deal for the Republicans in an environment where they have limited bargaining power. If Democrats end up sabotaging this deal in Congress, well, so much the better. They will become the obstructionists instead, and will have made the argument for their own oblivion in the next election.

Update: Just to clarify, the Death Tax was going to 55% on January 1, with an exemption to the first $3 million. Had we done nothing, that was the new status quo. Keep that in mind.

Update II: A few e-mailers inform me that the 2011 Death Tax would have started at $1 million, with 41%, escalating to 55% above $3 million, which makes it even worse.

Update III: Yes, tax revenues increased after 2003, and according to the CBO, in excess of overall economic growth. In fact, from 2003 to 2006, tax revenues jumped 35%:

Total federal revenues grew by about $625 billion, or 35 percent, between fiscal year 2003 and fiscal year 2006. CBO’s analysis of that increase in revenues since 2003 is necessarily preliminary because relevant data are not yet fully available. CBO examined the available data using the commonly employed method of analyzing the sources of revenue growth as a percentage of GDP. Had revenues grown at the same rate as the overall economy between 2003 and 2006, federal receipts would have increased by only $373 billion.

The filing deadline for federal unemployment insurance that provides benefits for people who run out of their 26 weeks of state-provided benefits without finding a job would be extended until January 2012. Essentially, this will make it possible for people who became unemployed in the past 99 weeks and still haven’t found a job to collect benefits for the same length of time as people who lost their job more than 99 weeks ago. This would not add additional weeks of benefits — 99 weeks would still be the maximum amount of time that anybody could receive benefits.

So in exchange for tax rates staying the same across the board, the GOP agreed to open the window for eligibility for an additional 13 months but not to pay more than 99 weeks to any individual. That adds cost, but not nearly what the White House’s description suggested. Big thanks to Gabriel Malor for clarifying this point for me.

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Comments

Much more to that story than you seem to understand. Ranchers and Farmers have passed down their businesses to their families for decades. So much more to the estate tax than most people care to learn about.

Yeah. Let’s piss and moan about making Obama eat some crow and get a decent deal on taxes when they aren’t even in power yet and show Obama to really be the feckless squish we all knew him to be, but now his own base sees it too…

We outta just hand the House back the Democrats if this is the best we can do for a first effort, when we aren’t even in power yet.

What was it RR used to say? Something about how when you walk away from the negotiating table having gotten 85% of what you wanted, that’s a win. You can go back later for the other 15%. I think this is one of those kinds of deals.

Defending this “compromise” is a classic example of what’s wrong with the GOP.

We must DEFEAT the left – not compromise with them.

jake-the-goose on December 7, 2010 at 9:59 AM

Jake, at some point you have to acknowledge political reality. Just because we will be in control of the House in a few weeks doesn’t mean we will be in control of The Government. We won’t just get everything we want just because we will hold the gavel in the House.

If we didn’t yield some ground we would have gotten nothing. And by gotten nothing I mean the entire Bush tax cut package would expire January 1 and all of our taxes would be jacked back up. I’m not for that, you’re not for that, Republicans in Congress (mostly) aren’t for that.

It is foolish to think that somehow John Boehner can wave a magic wand and get Obama and Reid to just roll over and approve GOP tax policy without getting some of what they want.

The political reality is that we can’t expect to get everything we want all the time. If we go forward and just demand to get everything we want then we will get nothing we want because the Senate won’t conceed and even if they did, Obama would veto.

I don’t understand why so many good solid conservatives seem to think that all is lost if we don’t get 100% of our agenda at a time when we control exactly zero branches of government. I don’t understand why so many good solid conservatives think that by controlling one half of one branch of government (which we don’t yet, mind you) we can just get 100% of our agenda and if we don’t get it all somehow the elections meant nothing and our leadership are all sellouts.

I don’t undertand why simple political realities like the fact that we are still the minority party in Washington don’t seem to mean anything to so many people here. It’s frustrating. When we, not yet even in control of one half of one branch of government, can negotiate a deal to prevent a massive tax hike and in the course of the negotiations walk away with 85% of our agenda intact, we’ve done pretty damn good.

For once, can the All Or Nothing crowd acknowledge political reality and, just for a moment, walk away from the fantasy land delusion that a minority party can have it’s demands met 100% without having to eat a little crap sandwich on the side?

Good gravy people. I hate ranting like this. But I swear, it’s impossible to wrap my head around the idea that some of you good solid conservatives refuse to understand that the minority party doesn’t set the legislative agenda, doesn’t decide what legislation gets voted on, doesn’t decide under what rules legislation is debated on, and doesn’t have the luxury of the veto. We can’t play the game by the rules we wish we had, we have to play by the rules that are in place and change them later when we have the opportunity.

So how about we acknowledge the fact that the scrappy minority party just rolled the big dogs and most of what we wanted while giving them very little of what they wanted. That’s what we call victory. Enjoy it.

As I predicted, Michael Gerson now has a piece up about passing the Dream Act. Exactly. After playing tough with Obama we now have to show our good faith and let him have his Dream Act. This is the mindset of these craven idiots in the GOP. The Tax deal only reinforces their profound masochistic guilt. “Oh my, look at all the nasty editorials about us! We’ll show them we’re not plutocratic Nazis! We’ll pass the Dream Act!”

Is that the tradeoff you expected? A tax deal that should never have been news anyway (what moronic government would raise taxes during an econonmic crisis!) for a devastating concession to illegal immigration and 2 million new democrat voters? Well we’ve got it.

So how about we acknowledge the fact that the scrappy minority party just rolled the big dogs and most of what we wanted while giving them very little of what they wanted. That’s what we call victory. Enjoy it.

Ok. My rant is over. For now.

dczombie on December 7, 2010 at 11:08 AM

Great rant dc!!!! (Read dczombie’s post completely again) I’ve been trying to say this for two days now with little sinking in to our admirably “hard lined” conservative friends, (and you’ve said it better than many here) You do have to admit though, their tenacity is inspiring…….

Rovin on December 7, 2010 at 11:24 AM
dczombie on December 7, 2010 at 11:10 AM

More will be revealed about this compromise. Hold on to your guns. This so called compromise is round one, and I wouldn’t be so quick to defend it. If it were true that we just got 85% of the whole, I would high five both of you. My instincts tell me much more will to come of this before we can assess victory or defeat.

well said dczombie. like election night a few weeks ago. we can’t dwell on the negatives but celebrate the wins here. i’m not saying we shouldn’t aim high just don’t become consumed by the negatives. remember how helpless we felt when healthcare and spending bills were getting passed? At least we don’t have to feel like that for a while.

My instincts tell me much more will to come of this before we can assess victory or defeat.

Keemo on December 7, 2010 at 11:32 AM

I agree that the deal could still be blown up. I think that if it goes through as we currently understand it per the WSJ front page article today, then we have a big win. But the Lame Duck House could still blow this up and make it into a big fat crap sandwich. That could happen. But if it doesn’t and the deal goes through as is, than we can throw a ticker tape parade and then start the 112th by going back for the points we left on the field.

Butchering that elk tonight Rovin, and then the freezers will truly be stuffed.

Keemo on December 7, 2010 at 11:48 AM

I wish we had elk hunting in the DC metro area. Unfortunately, though my guns are not getting rusty because they are well-oiled and maintained, they are also not getting much use. I can’t wait until they open up elk hunting in Rock Creek Park!

…So you can see why liberals are morose. A Capitol Hill aide described Sen. Majority Leader Harry Reid’s demeanor upon returning from the White House: “He looked like someone shot his dog.”

slickwillie2001 on December 7, 2010 at 11:42 AM

Liberals are never happy. For crying out loud in less than 2 years they nationalized health care, student loans, banking and GM. And they now have 3 years of unemployment benefits (which will turn into 4, 5, 20).

They are about 80% of the way to full Marxism.

What in the hell do they have to be sad about? Oh gee they extended tax rates for 2 years. Compared to what they’ve done to destroy capitalism that’s nothing.

The GOP gave away too much, the deal stinks. And the Progessive Dems doth protest too much and I am always suspicious when they do. Their protests make O look like a centrist and that might be their goal for him to start winning back indies for 2012. They never do anything that is unscripted.

What bothers me is the extension of the unemployment payments. THREE YEARS???

There is only ONE reason for this and that is to prevent people from going bananas over illegal immigrants. As long as they are collecting a payment from Uncle Sam, they aren’t going to demand the jobs from their local businesses that the illegals are holding. The Democrats are using unemployment compensation to protect their illegal immigrant affinity group.

If Congress cuts off those unemployment checks, the illegals are in serious trouble.

I also believe that is why there is a big push for DREAM right now. Congress knows that at some point they are going to have to shut off those unemployment benefits. The only way they can then protect their affinity group is to make them legal, so they need to pass DREAM before they can cut off unemployment checks and cause citizens to start demanding the jobs the illegals are filling.

Neither are a lot of conservatives. And for those of you who think it prudent to think 3-4 steps ahead when it comes to the left, remember what happens to those armies who outrun their own supply lines.

That’s what we were saying (hoping) with ObamaCare. Oh Nelson will never cave. Oh Lieberman will never cave. Oh there are enough Democrats who will not vote for it because they’re afraid of 2010.

DREAM will pass.

angryed on December 7, 2010 at 1:21 PM

Oooh… you bring up a good point. Consider this…

If this deal hadn’t been struck, Republicans would have held up ALL discussion until the tax hike was addressed. Now that they have ANNOUNCED (not voted on or passed) a deal, the Dems can move onto the Dream Act while the Repubs think they actually got something. This could just be a feint to keep the Repubs off balance, clinging to the ANNOUNCEMENT of a deal, instead of voting on an actual one… while Dems move on to selling out our country, again.

What if the Dream Act passed, but the tax hike “deal” were allowed to stagnate and expire in Congress…?

The bottom line is that the economy would have gotten even worse if we didn’t soon extend the tax rates. So I’m glad that the GOP agreed to a compromise, even though I wish we could’ve stuck to our principles. In this case, making a deal wasn’t “selling out” it was doing what was necessary to help revive an ailing economy. If the tax cuts had not been extended, the government revenues would have dropped, unemployment increased, and we’d all be feeling the pinch.

I’m not going to root for our economy to stay in the dumps for the next two years. That would mean rooting against the American People, a position I gladly leave to the Left.

You all know there’s another real negative about this cave-in,….oh, I mean compromise: now the filibuster by the 42 Repub. ends and DREAM Act, DADT, all the land grabs, and little mini-simulus’ plans can go forwards.

this is an ok deal for Repubs much better deal for Obama except for his ideology. this is good for economy and that will help Obama. we were dumb to fight the unemployment extension that is small potatoes and it is bad politics